Employee or self-employed?

Employee or Self-Employed: How it affects your benefits

If you are working we need to know whether you are an employee or self-employed, as this affects the amount of tax you pay and how your benefits are worked out.

You are in employment if you have a contract with an employer who works out your tax and National Insurance payments.

You are self-employed if you work out your tax and National Insurance yourself and report your income to Her Majesty’s Revenue and Customs. If you are a director of a limited company you are treated as an employee.

Benefits are worked out on net earnings. For an employee this means that your tax, National Insurance contributions and (some of) your pension contributions are deducted from the amount you are paid. The benefits calculator works out the amount of tax and National Insurance you should be paying for you. Other deductions, such as donations to charity or union fees are not taken off the amount you earn when your benefits are worked out. For more information go to earnings definition for employees.

For self-employed people, benefits are worked out on your net profit. First you should deduct the amount of allowable expenses from your takings. This gives you your gross profit. From your gross profit, an estimate is made of the amount of tax you should pay and the amount of National Insurance. As self-employed people pay different types of National Insurance to employed people, it is important that we know which type of work you are doing. For more information go to earnings definition if you are self-employed.

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